Make Your Portfolio Shine With This Stock

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Economic slowdown and weak demand has been a concern for food companies. Also, increasing commodity costs have been cruel to the food industry players, making their battle even worse. However, amidst all the problems there is one shining star that has been an incredible performer. Flower Foods (NYSE: FLO), which provides bakery products in the United States, has been a great company and is making the right moves to outperform its competitors.

Flower Foods recently posted its third quarter results, which not only met analysts’ expectations but also made investors happy. Its key to success is its continuous focus on quality and its efficiency in handling and integrating new acquisitions, and this quarter was not an exception.

Focus On Product Portfolio

The food retailer follows one principle blindly: expanding its offerings, giving customers a wide variety to choose from. Its new products, such as Kandy Bar Kake and Tastykake, were welcomed heartily by customers and are expected to reap further benefits in the coming months.

Flower Foods is known for its acquisition strategy. It has grown many times over the years mainly through buyouts. Also, its acquisition of Lepage Bakeries this year and of Tasty Baking Company last year contributed largely to its solid results. The recent acquisition has added new products to Flower’s portfolio and has also helped in expanding into new markets.

These strategies, coupled with a hike in product prices, enabled Flower Foods to post revenue growth of 6% to $717 million and an earnings jump of 8.7% to $0.25 per share. Though increasing product prices brought higher revenue, it scared away some customers, leading to volume declines.

Going By the Segments…

Out of the two segments, Flower Foods’ direct-store-delivery segment, which makes 83% of the company’s universe, grew 7%, driven by the benefits of acquisitions and increased pricing. However, its wholesale segment did not perform as well; it witnessed growth of 2.8% mainly because of growing demand for food products.

Opportunities in the Queue

The bakery products manufacturer has been very active on the strategic front and is up for some initiatives that might help it grow further. It has recently announced plans to acquire licenses and assets from BBU Inc., which will give it licenses for breads and buns made by Sara Lee and Earthgrains Brands. This acquisition will help add more products to its fresh bakery offerings and will boost its top line. Also, it will add more customers, which will lead to a better market position.

Additionally, the company is planning to increase its promotional spending, which will lure more customers and help pull back declining volumes. This will, in turn, help in marketing new products, which are expected to hit the market in the fourth quarter.

In fact, Flower Foods is also building on a new bread line in Oxford. The new launch will be introduced in early 2013 and is another opportunity investors can look forward to. It will be interesting to see how these strategies will drive Flower’s performance in the months to come.

Peer Comparison

Flower Foods, when compared to its peers, such as B&G Foods (NYSE: BGS) and General Mills (NYSE: GIS), has been performing quite well. The chart below shows the annual revenue growth of the industry players in the last 5 years:

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FLO Revenue Annual YoY Growth data by YCharts

With a 7.75% revenue growth, Flower has outperformed B&G Foods mainly because of its increased promotional spending, along with product innovation. On the other hand, B&G suffered large volume declines due to implementation of a price hike. In fact, in its recent quarter, B&G’s entire top line growth was attributable to the addition of Culver Specialty Brands and not to its existing business.

However, General Mills has been faring well because of its extraordinary moves. Its decision to enter into the yogurt business a blessing since it has been benefitting the company. Product innovation and the launch of new yogurt flavors have been crucial to its success. Consumers are becoming health conscious and companies, such as General Mills and Flower Foods, which provide  products that have become consumer favorites.

Conclusive Thoughts

Flower Foods has been managing its acquisitions well, along with new products that keep the customers hooked. Also, it provides healthy offerings through Nature Own product line which is attractive for the growing demands of health conscious customers. Moreover, it has been eyeing on increased market penetration through its buyouts which may help it grow. Its margins are also growing due to production efficiencies and a focus on pricing, making it an inevitable buy in the current scenario where companies are finding it difficult to even maintain their gross margins. I believe this company is wonderful, and should never be ignored.

justhimanshu has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Flowers Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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